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Auto insurance is mandatory in most states across the country. All motorists know they have to get at least some minimum coverage, but a lot of people live with some misconceptions. This article will debunk six common myths about auto insurance.
Fact: the insurers bind themselves to pay the current market value (or repair price) of the car, which may be a lot less or sometimes a lot more than what you owe on your loan or lease. Cars don’t depreciate linearly – they typically lose 15-30% of their value when they are driven off the lot, so it can be that a vehicle is worth as little as 50% of its acquisition price only two months after you bought it.
The market value is also influenced by the car’s condition. A three months old car with a 100,000 mileage that had only been parked on the street will be worth much less than one of the same age that had been kept in a garage and only driven on weekends.
If you know that your car will depreciate much faster than you will be paying it off, get a gap policy. Gap insurance will cover the difference between what the insurer pays you and what you still owe your lien holder.
Fact: while there are crooks who specialize on stealing luxury cars, statistics show that old and jaunty vehicles are still on top of thieves’ preferences. Honda and Toyota are the manufacturers who have been holding the top positions since 2000, but Ford and Dodge are catching up fast. 1995 Honda Accord, 1991 Honda Civic, 1991 Toyota Camry, Ford F-150, Ford Explorer SUV, Dodge Ram and Dodge Caravan make up for some of the most stolen vehicles in 2011.
Selling a stolen car on the black market seems to be much easier when there are tens of thousands of similar models on the roads, whereas a shiny new $400,000 Lamborghini will always draw lots of attention. So, just because you drive a $3,000 car, it doesn’t mean that you aren’t a target for thieves. Keep an eye out and… get covered!
Fact: the car insurance company will protect you, your passengers and your vehicle, not your personal belongings. If your expensive gold clubs get damaged when your car gets rear-ended, the insurance company won’t have anything to do with them. Similarly, if you leave your laptop unattended on the backseat and someone smashes your window and steals it, the insurer will only reimburse you for the window.
Theft coverage, which is included with a Comprehensive policy, reimburses you when your car gets stolen, and not whatever you had inside. It would be difficult to prove that you even had that laptop on the backseat. The only chance you have at being reimbursed for your loss is to file a claim through your homeowner’s (or tenant’s) insurance, and not through a car policy.
Fact: again, this is quite far from the truth. There are several companies who don’t check your FICO score (Allstate being one of the major ones), but, in general, all insurers take your credit score into account when computing your insurance rate. The credit score is viewed as an indicator of how you handle your financial affairs. If you can’t pay your bills on time, every time, you probably will miss insurance payments too.
Everybody checks your credit score these days, even landlords and cell phone companies. If your FICO score is below 650, you are highly advised to do your best to improve it. There are many companies out there who can help you out and further advice is out of the scope of this article. Just do it, a better score will make your life easier!
As funny as it may sound, there are people who believe that the color of their car might affect the insurance premium and that, in particular, red cars cost more to insure. I wouldn’t have listed it as a common myth if I haven’t heard so many people talking about it.
No, the underwriter takes a myriad of indicators into account, but not the color of your car. Such a misconception might be related to the traditional red color Ferrari sports cars come with. Yes, a $200,000 Ferrari is expensive to insure, but the premium stays the same for yellow, black, pink or white Ferrari’s!
Fact: auto insurance follows the vehicle, and not the owner. If you own a vehicle and is listed on your policy, you are liable for the damages caused by whoever is driving it, provided they were found at-fault. If you borrow your friend’s car and cause an accident, the owner’s policy will act as primary and your insurance company will be the secondary coverage provider.
The same goes for Comprehensive and Collision policies. The insurance company will reimburse the owner for damages incurred on the insured vehicle – the one listed on the policy – and not whichever other car the policyholder may drive.
